Could Uber and Lyft's IPOs Be Delayed?

On Friday, we saw the end to a 35-day partial government shutdown for the U.S., the longest U.S. shutdown in history. But that end could be just temporary.

The president agreed to open the government back up, but only until February 15th. That’s the deadline for both Congress and President Trump to come to some sort of agreement. Only time will tell if it’s possible for pride to be put aside and for the two come to an agreement for the good of the country.

The president’s announcement this past Friday was good news for a lot of government workers who haven’t received their last two paychecks. Without a doubt, the shutdown was putting major financial and mental stress on the country and government employees. However, it’s hard to feel secure that the country won’t go back to that level of stress when we start getting closer to February 15th deadline.

The president had a decision set in his mind that if Congress didn’t accept his proposal for funding to build a wall for border security, then the government would stay shut down — a slightly stubborn stance in my opinion. Throughout those 35 days, both sides needed to put pride aside and meet to negotiate what would be best for the country, but that wasn’t happening.

Obviously, a 35-day government shutdown had a huge impact on the country. And more specifically, this shutdown played a crucial role in a slowdown in the initial public offering (IPO) market.

U.S. Government Shutdown Creates an IPO Slowdown

At the end of last year, I couldn’t stop talking about how great the 2018 market was. 2018’s IPO market raised $46.9 billion, and 191 companies went public. It was a record-breaking year for IPOs!

Then there was news of highly valued and well-known companies looking to IPO in 2019 — companies like Uber, Lyft, Slack, Pinterest, CrowdStrike, and Airbnb, just to name a few. 2019 was looking to be another record-breaking year, and of course, I was more than excited about that.

During a panel on automated markets at the World Economic Forum in Davos, Switzerland, Nasdaq CEO Adena Friedman said:

[We] had 22% higher number of IPO applications at the end of [2018] as we had at the end of [2017]. So, there is a lot of demand for companies wanting to tap the public markets.

But all of that has been postponed. The shutdown meant the Securities and Exchange Commission (SEC) couldn’t review or sign off on companies that needed it to review their financials before they could go public and start selling stock to investors.

Even a temporarily opened government might not have a big of impact on the IPO market because the filing process with the SEC takes months, not days. If the government returns to being closed, that would mean IPO business would go back into a slowdown and never be able to reach full potential for 2019.

Hoping for the Best, Preparing for the Worst

John Tuttle, COO of the NYSE, is hoping there will be some movement during the three-week window of the government being opened, especially for those companies that were set to IPO.

Tuttle said:

With the government reopened, we can expect several companies to launch their roadshow and complete an initial public offering. That said, the second half of February is usually a slower period for IPOs due to third-quarter financial statements going stale. We are hopeful policymakers will agree to keep the federal government open and allow companies to access our public markets to raise capital and ultimately fuel economic growth.

Investment banks collect million-dollar fees from IPOs, and if there are no IPOs happening, then those investment banks aren’t collecting money. Not to mention, the investors who stay up to date on the IPO market and who enjoying getting their hands on big companies like Uber, Lyft, Airbnb, Pinterest, and Slack are growing impatient.

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Even if the government stays open past February 15th and there is a resolution, the IPO slowdown could continue for a little longer. Companies aren’t particularly attracted to the idea of IPO'ing in February because of lackluster financial statements, which will lead them to hold off until their financial statements are more attractive to potential investors and banks.

Tuttle said:

Where it’s particularly challenging is a lot of companies based on their fiscal year end their numbers in those documents [which] go stale in mid-February. So that will push them even later in the cycle.

Companies that were hoping to IPO in the first quarter of 2019 will now push their IPOs a little later. There is a lot of marketing involved with IPO'ing. A company wants to appeal to investors to earn the most from its IPO and to prove that it’s worthy of being a future investment.

Stay Informed and Know What to Expect

At this moment, we’re hoping that in the next three weeks, Congress and the president will come to an agreement about how to budget for border security. They both agree that border security is an important topic and should be budgeted for, but that main disagreement is budgeting for the border wall Trump is advocating for.

We can’t afford another government shutdown. It’s going to have an even greater impact if it continues after February 15th.

There are a lot of opportunities to be had in the IPO market. Imagine being part of a company that has the potential to be the next Apple or Amazon. Knowing and learning about a company the moment it goes public and following the company on the way to its success is one of the most rewarding experiences you can have as an investor.

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.

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